Pound Sterling (GBP) Exchange Rate Outlook ? UK Growth Data Ahead

This week was a game of two halves for the Pound Sterling exchange rate. The British currency gained on the Euro in the first half and trounced its US rival in the second. Demand for the Pound was initially generated by the Bank of England’s meeting minutes as they were more hawkish in tone than many investors had anticipated. Economist Sam Hill said of the minutes; ‘Looking ahead, there is the possibility of less downward pressure to come than previously thought from the strength of Sterling. Combine that with the reversal in the base effects from the fall in energy prices later this year and it is possible to imagine that the Bank could envisage a faster pick-up in inflation.’

As well as climbing beyond 1.40 against the Euro, Sterling rallied above the 1.50 level against the US Dollar. However, the British currency’s gains were a little stymied by the UK’s latest retail sales report. Given that economists had envisaged a 0.5% increase in sales, the -0.5% decline was both surprising and disappointing. The sales number prompted notable Pound losses. According to Reuters News Agency; ‘Thursday’s retail sales figures added to the likelihood that Britain’s strong economic growth slowed sharply in the first quarter of this year. The preliminary gross domestic product numbers are due for release nine days before the election. The biggest fall in fuel sales in almost three years triggered an unexpected 0.5% drop in overall sales’.

The Pound was able to rebound against the US Dollar thanks to a run of poor US data, but the GBP/EUR exchange rate drifted to (and held at) the 1.39 level. Next week the Pound could fluctuate in response to the UK’s first quarter growth data, Nationwide House Price report, Mortgage Approvals numbers and Markit Manufacturing PMI. The build up to the general election will also be sparking movement, and if any party breaks away in the polls the Pound could experience intense volatility.